General FAQs on New Payment Card Reporting Requirements
Check for updates — updated Feb. 3 and Feb. 10, 2012, with new Q&As.
Why is this reporting necessary?
How are reportable transactions to be reported?
What information must be reported?
Can Forms 1099-K be filed electronically?
What are payee statements and when are they due?
Can payee statements be furnished electronically?
What is the de minimis standard for reporting?
Does the de minimis standard apply to payment card transactions?
What constitutes the "gross amount" of reportable transactions?
Does the "gross amount" include fees, charge-back or other costs and refunded amounts?
Are foreign payment settlement entities subject to the reporting requirements?
What qualifies as a "payment card?"
Are purchases made with stored-value cards or gift cards reportable transactions?
How can payee TINs be verified? How soon?
Will the IRS assert penalties for inaccurate data submitted on the 1099-K?
I received Form 1099-K for 2011. How do I report it on my tax return this year and what are the plans for reporting in 2012?
IRS announced in October that separate reporting of these transactions for other business receipts or income payments is not required for 2011. Taxpayers should follow the form instructions for reporting their gross receipts or sales. Report items that qualify as a trade or business expense on the appropriate line item of Schedules C, E and F. There will be no reconciliation required on the 2012 Form 1099-K, nor do we intend to require reconcilation in future years. [Added 2/10/12]
What is a payee?
A payee (or "participating payee") is any person that accepts a payment card as payment, or in the case of a third party network transaction, any person that accepts payment made by a third party settlement organization on behalf of the purchaser or customer.
Why is this reporting necessary?
The reporting is required by law. Third-party information reporting has been shown to increase voluntary tax compliance, improve collections and assessments within IRS, and thereby reduce the tax gap.
How are reportable transactions to be reported?
The entity responsible for reporting merchant card and third-party transactions will report gross transaction amounts on the new Form 1099-K, Merchant Card and Third-Party Payments.
What information must be reported?
The gross amount of reportable transactions of a payee for the calendar year and its corresponding months are required to be reported. The reporting of both annual and monthly amounts is necessary in order to reconcile differences between information returns and tax returns of fiscal year filers. The name, address, and taxpayer identification number of each participating payee must also be included on the form.
When are Forms 1099-K due?
Information reporting for payment card and third party network transactions are due to the IRS by Feb. 28 (March 31, if filed electronically), of the year following the transactions. The first Forms 1099-K will be due for calendar year 2011, and must be submitted to the IRS by Feb. 28, 2012 (March 31, 2012 if filed electronically). Since March 31 falls on a Saturday, the due date for filing electronically is April 2, 2012).
Can Forms 1099-K be filed electronically?
Yes, there will be protocol for the electronic submission of Form 1099K. In fact, if a payment settlement entity must submit more than 250 individual information returns in any calendar year, all must be submitted electronically. Information about electronic filing of Form 1099-K can be found on this website.
What are payee statements and when are they due?
Payment settlement entities must furnish a "payee statement" showing the information reported to the IRS on Form 1099-K to each participating payee. The statements must be provided by the reporting entity to the payee by January 31 of the year following the calendar year for which the return was made. The first payee statements must be furnished by Jan. 31, 2012.
When should reportable payment transactions be reported if the transaction and settlement occur in different reporting periods?
Use the date of the reportable payment transaction for reporting on the 1099-K. For payment card transactions, use the date that the merchant accepts the payment card. Use the date on which the merchant accepts payment through a third-party network for a third-party network transaction.
Can payee statements be furnished electronically?
Yes, payee statements may be provided electronically. Consent for receipt of electronic statements must first be provided by the payee. Consent can be granted electronically. See Treasury regulations section 1.6050W-2 for instructions for receiving consent from payees. If a payee statement is submitted electronically, an email address for the reporting entity may be provided in lieu of a phone number.
Which date should be used for reporting on Form 1099-K when the reportable payment transaction and payment settling that transaction occur in different reporting periods?
Use the date of the reportable payment transaction for reporting on the Form 1099-K. For payment card transactions, use the date that the merchant accepted the payment card. For third party network transactions, use the date the merchant accepted payment through a third party payment network.
What is the de minimis standard for reporting?
The de minimis standard exempts the reporting of transactions settled by a third-party settlement organization of a payee in a third-party payment network if the aggregate payments to the payee do not exceed $ 20,000 or if the aggregate number of transactions does not exceed 200 within the calendar year. This applies only to the payments settled by third-party settlement organizations.
Does the de minimis standard apply to payment card transactions?
No, the de minimis standard does not apply to payment card transactions; the de minimis standard applies only to the payment settled by third-party settlement organizations.
What constitutes the "gross amount" of reportable transactions?
The "gross amount" of reportable transactions means the total dollar amount of aggregate transactions without regard to any credits, charge-backs, fees, cash equivalents, discounts, refunds or any other amounts.
Does the "gross amount" include fees, charge-back or other costs and refunded amounts?
No, the "gross amount" is strictly the total dollar value paid to the participating payees before any fees, refunds or any other amounts are considered.
Are foreign payment settlement entities subject to the reporting requirements?
Yes, the statute and regulations establish that a "payment settlement entity" may be a domestic or foreign entity.
Are payment settlement entities required to report the transactions of governmental units, whether state or federal?
Yes, the term "participating payees" includes any governmental unit as well as any agency or instrumentality thereof.
What qualifies as a "payment card?"
Under the regulations, a payment card is a card, issued to a cardholder that a network of unrelated persons has agreed to accept as payment under an agreement that provides standards and mechanisms for settling the transactions between a merchant acquiring bank or similar entity and the providers who accept the cards as payment. "Unrelated" means any person who is not related within the meaning of section 267(b) of the Internal Revenue Code, including the application of section 267(b) and (e)(3), or section 707(b)(1).
The term "payment card" includes credit cards, debit cards, and stored-value cards, as well as payment through any indicia of a payment card (such as a credit card number).
Are purchases made with stored-value cards or gift cards reportable transactions?
It depends. Purchases made with store cards or gift cards are not reportable when the card is accepted as payment by someone who is related to the issuer of the card (such as a subsidiary company or the company itself). Under these circumstances, the stored-value cards do not fit the definition of a "payment card" and purchases made with such cards are therefore not reportable. However, purchases made with a stored-value card accepted by a network of persons unrelated to the issuer and each other are reportable transactions. "Unrelated" means any person who is not related within the meaning of section 267(b) of the Internal Revenue Code, including the application of section 267(b) and (e)(3), or section 707(b)(1).
Do healthcare networks fit within the definition of a third-party settlement organization? What about accounts payable departments?
Health carriers operating a healthcare network do not fit within the definition of a third-party settlement organization because they do not transfer funds from buyers to sellers. Rather, health carriers accept payment, in the form of premiums, from buyers (employers or persons covered under the carrier's plan) in order to give those buyers access to a network of healthcare providers; separately, health carriers then pay compensation to the medical professionals within their networks pursuant to predetermined rates. Accordingly, healthcare networks do not qualify as third-party settlement organizations.
Likewise, an inhouse accounts-payable department is not a third-party settlement organization. An in-house accounts-payable department is not a third-party settlement organization quite simply because it is not a "third-party." It is merely an internal processor of payments by the umbrella organization to outside parties.
If transactions are already reported under other sections of the Internal Revenue Code, must they be reported again by payment settlement entities?
Section 6050W explicitly grants the Secretary the power to draft regulations to prevent duplicate reporting of the same transaction. The final regulations under section 6050W (the new payment card reporting requirements) provide that payment card and third-party network transactions that otherwise would be reportable both under section 6041 or 6041A(a) and under section 6050W must be reported under section 6050W and not under section 6041 or 6041A(a). Relief has not been granted for reporting under any other Internal Revenue Code section.
If a worker at a trade or business is an independent contractor, and the independent contractor swipes merchant payment cards (e.g., VISA, MasterCard or American Express) on behalf of the trade or business in the normal course of business (in other words, the trade or business, not the independent contractor, receives the proceeds), should the trade or business report payments to the worker on Form 1099-K or Form 1099-MISC?
The trade or business should continue to report payments made to independent contractors on Form 1099-MISC as they have done in the past. No Form 1099-Ks should be issued. [Added 02/02/2012]
How can payee TINs be verified? How soon?
Verification of payee TINs is done through the "Taxpayer Identification Number (TIN) Matching Program." See Revenue Procedure 2003-9, 2003-1 C.B. 516 for additional information. Verification of payee TINs in the IRS' database is permitted as of the date of the legislation's enactment (July 30, 2008).
Can the entity responsible for filing Form 1099-K contract with a third-party to prepare and file these returns?
Yes. However, the entity responsible for filing (i.e., the entity that submits the instructions to transfer funds) is liable for any applicable penalties under sections 6721 and 6722 if the reporting requirements are not met. In addition, the name, address, and Taxpayer Identification Number of the entity responsible for filing must be reported on the Form 1099-K in the box for Filer's.
Will the IRS impose penalties for inaccurate data submitted on the 1099-K?
The IRS is granting penalty relief. See IR Notice 2011-89, which will be published in Internal Revenue Bulletin 2011-46 dated Nov. 14, 2011. The notice is also available on this website.
Is the IRS considering any relief from back-up withholding?
The IRS is providing relief from back-up withholding. See IR Notice 2011-88, which was published in Internal Revenue Bulletin 2011-46 dated Nov. 14, 2011. The notice is also available on this website.
For more information, go to the Third Party Reporting Information Center.
